Regulatory Matters

Regulatory Assets and Liabilities

The Company has recorded the following regulatory assets and liabilities:



	At September 30
	2016			2015
	(Thousands)
Regulatory Assets(1):
Pension Costs(2) (Note H)	$	203,755		$	202,781
Post-Retirement Benefit Costs(2) (Note H)	74,802			34,217
Recoverable Future Taxes (Note D)	177,261			168,214
Environmental Site Remediation Costs(2) (Note I)	23,392			24,606
NYPSC Assessment(3)	5,804			13,916
Asset Retirement Obligations(2) (Note B)	12,490			12,250
Unamortized Debt Expense (Note A)	1,688			2,218
Other(4)	16,123			10,895
Total Regulatory Assets	515,315			469,097
Less: Amounts Included in Other Current Assets	(15,616		)	(20,438		)
Total Long-Term Regulatory Assets	$	499,699		$	448,659



	At September 30
	2016			2015
	(Thousands)
Regulatory Liabilities:
Cost of Removal Regulatory Liability	$	193,424		$	184,907
Taxes Refundable to Customers (Note D)	93,318			89,448
Post-Retirement Benefit Costs (Note H)	67,204			60,013
Amounts Payable to Customers (See Regulatory Mechanisms in Note A)	19,537			56,778
Off-System Sales and Capacity Release Credits	15,930			21,027
Other(5)	31,380			32,923
Total Regulatory Liabilities	420,793			445,096
Less: Amounts included in Current and Accrued Liabilities	(34,262		)	(62,124		)
Total Long-Term Regulatory Liabilities	$	386,531		$	382,972

(1)

The Company recovers the cost of its regulatory assets but generally does not earn a return on them. There are a few exceptions to this rule. For example, the Company does earn a return on Unrecovered Purchased Gas Costs and, in the New York jurisdiction of its Utility segment, earns a return, within certain parameters, on the excess of cumulative funding to the pension plan over the cumulative amount collected in rates.


(2)	Included in Other Regulatory Assets on the Consolidated Balance Sheets.


(3)	Amounts are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2016 and September 30, 2015 since such amounts are expected to be recovered from ratepayers in the next 12 months.


(4)	$9,812 and $6,522 are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2016 and 2015, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $6,311 and $4,373 are included in Other Regulatory Assets on the Consolidated Balance Sheets at September 30, 2016 and 2015, respectively.


(5)	$14,725 and $5,346 are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheets at September 30, 2016 and 2015, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $16,655 and $27,577 are included in Other Regulatory Liabilities on the Consolidated Balance Sheets at September 30, 2016 and 2015, respectively.

If for any reason the Company ceases to meet the criteria for application of regulatory accounting treatment for all or part of its operations, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the Consolidated Balance Sheets and included in income of the period in which the discontinuance of regulatory accounting treatment occurs.

Cost of Removal Regulatory Liability

In the Company’s Utility and Pipeline and Storage segments, costs of removing assets (i.e. asset retirement costs) are collected from customers through depreciation expense. These amounts are not a legal retirement obligation as discussed in Note B — Asset Retirement Obligations. Rather, they are classified as a regulatory liability in recognition of the fact that the Company has collected dollars from the customer that will be used in the future to fund asset retirement costs.

NYPSC Assessment

On April 7, 2009, the Governor of the State of New York signed into law an amendment to the Public Service Law increasing the allowed utility assessment from the then current rate of one-third of one percent to one percent of a utility’s in-state gross operating revenue, together with a temporary surcharge (expiring March 31, 2014) equal, as applied, to an additional one percent of the utility’s in-state gross operating revenue. Pursuant to a New York State budget agreement in 2014, the temporary increase in the assessment will be phased out over a three year period ending July 1, 2017. The NYPSC, in a generic proceeding initiated for the purpose of implementing the amended law, has authorized the recovery, through rates, of the full cost of the increased assessment. The assessment is currently being applied to customer bills in the Utility segment’s New York jurisdiction.

NYPSC Rate Proceeding

On April 28, 2016, Distribution Corporation commenced a rate case by filing proposed tariff amendments and supporting testimony requesting approval to increase its annual revenues by approximately $41.7 million. Distribution Corporation explained in the filing that its request for rate relief was necessitated by a revenue requirement driven primarily by rate base growth, higher operating expense and higher depreciation expense that are not reflected in current rates, among other things. The rate filing includes a proposal for system infrastructure modernization that includes the acceleration of Distribution Corporation’s replacement of certain gas mains, which are of a type generically classified by the NYPSC as “leak prone pipe”. The NYPSC may accept, reject or modify Distribution Corporation’s filing. On October 19, 2016, the Company filed a Notice of Impending Confidential Settlement Negotiations notifying the NYPSC that Distribution Corporation, Department of Public Service Staff and other interested parties were entering into settlement discussions, which may result in settlement of some or all of the issues raised in the proceeding. The outcome of the proceeding cannot be ascertained at this time.

FERC Rate Proceedings

Supply Corporation's current rate settlement requires a rate case filing no later than December 31, 2019 and prohibits any party from seeking to initiate a rate case proceeding before September 30, 2017.

By order dated January 21, 2016, the FERC began a NGA Section 5 rate review of Empire's rates. As required by that order, Empire filed a Cost and Revenue Study on April 5, 2016. On May 25, 2016, Empire reached a settlement in principle on this matter that would, among other things, reduce certain of Empire’s maximum transportation rates over a 14-month period, which, based on current contracts, is estimated to reduce Empire’s revenues on a yearly basis by between $3 million to $4 million. The settlement also reduces Empire’s depreciation rate from 2.5% to 2%. In addition, the settlement provides an annual revenue sharing mechanism, pursuant to which non-expansion transportation revenues exceeding $73.5 million are shared on a tiered basis. Under the settlement, Empire will be required to make a general rate filing no later than July 1, 2021. On July 22, 2016, Empire filed the settlement at the FERC and on October 20, 2016, the FERC issued an order conditionally approving the settlement. The settlement is not expected to have a material impact on the Company’s financial condition.

Off-System Sales and Capacity Release Credits

The Company, in its Utility segment, has entered into off-system sales and capacity release transactions. Most of the margins on such transactions are returned to the customer with only a small percentage being retained by the Company. The amount owed to the customer has been deferred as a regulatory liability.